Benchmarking and competitor analysis

At Douglas Fairless Partnership Ltd we can advise business owners in the Liverpool area on many aspects of running and growing a business. Here are some pointers on benchmarking and competitor analysis...

Most business owners know that they should do competitive analysis, but often they do not know exactly what to do, when to do it, and how to extract the most value at the least cost.

Competitive analysis is more effective when it is really focused - and in such a way that leads directly and quickly to real business improvement. You can do this by 'benchmarking' your business against competitors.

Why benchmark?

Without some benchmarking you can easily get overtaken by other competitors, or by new forms of competition. You can also become complacent, take customers for granted and become sluggish and reactive, rather than proactive.

Indeed, this can happen even at the highest level of business. For example, the board of Marks and Spencer has been accused of failing to respond to changes in the marketplace, when retailers such as Next and Gap, and even supermarkets such as Tesco and Asda, began to significantly erode Marks & Spencer's market share in the late 1990s.

Benchmarking should be an ongoing process, and not just an afterthought as part of annual business planning exercises. Every day could present opportunities to learn from your competitors and improve your business performance.

Who should you benchmark against?

You should analyse your business in relation to:

competitors to whom you are vulnerable

competitors with weaknesses, of which you may be able to take advantage

strong competitors, from whom you can learn

new entrants to the market, who might have a fresh approach to marketing or customer service.

What should you benchmark?

You should benchmark areas where we can take advantage of your strengths, or conversely, areas where you are most vulnerable. You can analyse aspects of your business by breaking it down into areas such as:

product range, quality and pricing

targeted markets

image and branding

distribution channels

geographic area

technology

customer service

As you will be limited in the amount of resources and attention that can be put into new strategies to beat your competitors, you may need to be very selective. Perhaps you will initially focus on only 20 per cent of your business.

How do you do it?

One of the most useful approaches is to use some form of "Competitor Profiling" technique. Using your chosen areas for benchmarking, you can create a table like the one below for each of your competitors.

Very strong

Strong

Average

Weak

Very Weak

5

4

3

2

1

Brand image

Product quality

Customer service

Innovation

Supporting systems

Cost base

Marketing

Information can be gathered from a variety of sources, including: customers, suppliers, distributors, industry commentators and staff joining your organisation. You can also make contact with competitors - perhaps by acting anonymously as a customer - and you can examine their job advertisements, their annual reports, and their visible publicity, brochures and products.

Having compiled a table for each competitor, the next stage is to score your own business; you will need to try to see some of the criteria from the customers' point of view. This will allow you to see at a glance the comparative areas of strength and weakness.

Interpreting the results

The important thing is to focus principally on learnings and competitive insights rather than primarily on measurement. Try bringing together key managers and staff members in short "focus" sessions - perhaps over a long working lunch. We can help you with this stage, and with other aspects, too.

Getting the maximum value for your business

Benchmarking should be an ongoing learning process. Its principal value should be as a spur to strategic and innovative thinking, and to act as a continual challenge to your business culture and mind-set.

But competitor analysis is especially important when you are contemplating any new business development. It can pay to act out full role-plays, and to "think as if I am a competitor".

As chess players know to their cost, if you spend all of your time thinking about only your own moves, you will almost certainly lose.

If you are in the Liverpool area and are looking for support and advice from a team of professional accountants and business advisers, contact Douglas Fairless Partnership Ltd.